Step 4 ~ Liability of the Business Owner

One of the most frequently misunderstood aspects of business credit is even though you did not provide a personal guarantee you are often liable for the business debt created by your soon-to-be formed business credit accounts. We discuss in detail the importance of structuring the proper entity, keeping it in good standing and having the proper accounting and record-keeping systems in place. If all this is done there is a recognizable entity doing business rather than just you, the small business owner, doing business which creates a clear separation of liability. It’s a confusing subject so there are a few things that must be understood before we start the process of building business credit.
Use Business Credit Wisely

The first thing to remember is business credit is not expendable and it should be used wisely. Don’t think that just because you won’t provide the business credit issuer with your social security number or any other personal information that it can’t easily be found if they want to access it for any reason. You can protect yourself by having a clearly defined line between personal and business affairs but that barrier is not impenetrable. If an accounts starts getting paidlate, or not at all, the business credit issuers are likely to do anything in their power to try and collect on the debt. We have seen business credit issuers add late payments to the small business owners personal credit reports. We have seen business credit issuers come back and sue the small business owner for a past-due account. These situations can happen on any application regardless of whether or not you provide a personal guarantee.

Although business credit issuers regularly lend to small businesses they are also very aware of the business law of averages, where only 2% of businesses remain in business for over two years. They are also aware of the many fraudsters who take advantage of business credit to get around their bad personal credit. The bad news for the true small business owner attempting to build business credit is the business credit accounts that are available without a personal guarantee also carry very stiff interest rates and terms. All the more reason to have an excellent personal credit rating so at least you can have business credit that doesn’t report to your personal and carries with it reasonable rates and terms.